Citing forecasts of a brief increase in inflation between March and May, the State Bank of Pakistan’s (SBP) Monetary Policy Committee (MPC) on Monday agreed to maintain the policy rate at 12%.
“At meeting today, the committee decided to keep the policy rate unchanged at 12 percent,” the MPC said in its announcement.
Despite this drop, the committee evaluated the dangers that these prices’ intrinsic volatility posed to the current downward trend in inflation.
The MPC said in its most recent policy review that an increase in the cost of food and energy could result in higher inflation since core inflation is proving to be more durable at an elevated level.
The committee also observed that recent high-frequency indicators indicate that economic activity is improving. Nonetheless, worries about pressures on the external account brought on by sluggish financial inflows and growing imports persist.
“On balance, the MPC assessed the current real interest rate to be adequately positive on a forward-looking basis to sustain ongoing macroeconomic stability,” it stated.
The decision comes after an International Monetary Fund (IMF) mission evaluated Pakistan’s $7 billion rescue plan, including talks about revenue goals and taxation policies that could affect monetary policy and inflation.
The SBP has been implementing an aggressive monetary easing cycle since June 2024, lowering the policy rate by 1,000 basis points (bps) over a six-month period.
January saw the lowest level of inflation in almost nine years, at 2.4%, and February is expected to see a further reduction to 2.2%. However, analysts have suggested that the SBP may limit the pace of future rate decreases because core inflation is still high, the current account deficit is growing, and market yields are rising.
As part of its continued promises to economic reform under the bailout program, Pakistan may be able to access the next funding tranche if the IMF review is authorized prior to the June budget.
